FBN Holdings not affected by CBN’s dividend payout rule

Renaissance Capital (RenCap), a global investment bank, yesterday said FBN Holdings Plc will not be affected by the new dividend payout rule released by the Central Bank of Nigeria (CBN).

The firm said that lenders operating holding company structures will not be restricted by the policy in dividend payment.

In a report titled: ‘Nigerian Banks: CBN includes Additional Provision for Dividend Pay-outs’ the firm said: “Restrictions only apply to the banking entity, and not the group as FBN Holdings for instance paid out N0.20 kobo per share (51 per cent dividend pay-out) in fiscal year 2016, despite a Non-Performing Loans (NPLs) ratio of 24.4 per cent. This was paid out of the other non-banking subsidiaries within the group”.

“Dividends paid to the shareholders are from the subsidiaries of the holding company of which the commercial banking group (FBN) currently retains in its business to build stronger capital buffers to execute strategic initiatives,” The Nation further learnt.

The RenCap report said the CBN ban on dividend payout is not a new development as it was originally implemented on October 8, 2014 in a circular which stipulated that a bank’s ability to pay dividend is based on NPLs ratio. Banks with NPL ratios above 10 per cent shall not be allowed to pay dividend.

It said capital position where banks which do not meet the minimum capital adequacy ratio shall not be allowed to pay dividend and Credit Risk Ratings (CRR) which are not typically disclosed by the banks.

The revised circular however, includes an additional provision that banks that have capital adequacy ratios (CAR) of at least three per cent above the minimum requirement, CRR of “Low” and NPL ratio of more than five per cent but less than 10 per cent, shall have a dividend pay-out ratio of not more than 75 per cent of profit after tax.

“Based on our conversations with management, we think that a 75 per cent pay -out ratio is highly unlikely.

We note that the highest dividend pay-out ratio for the banks in our coverage universe in 2017 is 50 per cent (GTBank and Zenith). We expect the banks to take a conservative stance on dividend pay-out in light of IFRS 9 capital requirements, which could reduce CAR by as much as 150 basis points in a worst case scenario,” the report said.

It said Zenith Plc, United Bank for Africa (UBA) and Fidelity Bank offer attractive dividend yields of seven to eight per cent based on our 2017 fiscal year estimates while GT Bank and Access Bank stand closer to five to six per cent. “Dividends will be declared with the release of fiscal year 2017 numbers, which we expect in about two weeks,” it said.